PERTE Chip: Spain in search of its place in the European semiconductor effort

Emilio García

12 mins - 23 de Mayo de 2023, 07:05

The European Digital Compass 2030 has set a European Union target of maintaining domestically at least 20% of global semiconductor production by value by 2030, with the current value at 9%. But semiconductor manufacturing is not the only weak link in Europe’s value chain. According to the latest State of the Industry report, the old continent does not lead in any segment of the supply chain and is only relatively strong (around 20% of the global market) in design tools and manufacturing equipment. In the other links of the chain (design/fabless, materials and packaging/testing), it does not even reach the percentages that it has in chip manufacturing.
Figure 1.- Value added for the semiconductor industry by activity and region in 2021
Source: 2022 State of the U.S. Semiconductor Industry

In order to revive its semiconductor ecosystem, the European Union initiated in February 2022 the termed ‘Chip Law’. In the last week of April 2023, a political agreement was reached on the rule that will allow it to enter into force before the end of the year. In parallel to the process in the EU institutions, Member States have launched national initiatives that will allow Europe to mobilise €43 billion in the coming years. One of the most ambitious of these is Spain’s Strategic Project for the Recovery and Economic Transformation of Microelectronics and Semiconductors (PERTE Chip).

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PERTE Chip aims to strengthen the design and production capacities of the national microelectronics and semiconductor industry. It is expected to mobilise a public investment of €12.25 billion through 2027, and its comprehensive approach will strengthen and develop the links of a complex value chain in Spain. It is the largest PERTE among the dozen approved by the government as part of the Recovery, Transformation and Resilience Plan (PRTR), generating an unusual focus of attention in a technology programme. One year after its approval by the government, it is an adequate moment to recapitulate its progress and the mechanisms it provides to the national technological fabric to play a relevant role in the European ecosystem.

PERTE Chip’s First Steps
Perspective is frequently lost regarding the fact that every major national, technological or other project is, in reality, a European project. Our status as a Member State of the Union provides the funds for the development of these projects, but the funding comes with a number of obligations and requirements. One European technology project was the drive to deploy fibre optic networks, and PERTE Chip is also a European project. The main conditionalities for the implementation of such projects are the regulations defining the mechanisms of access and use of funding and the compliance with EU state aid rules. 

In the case of PERTE Chip, it has been necessary to finalise in Europe the concretisation of the conditionalities described above. On the one hand, the approval of the addendum to the PRTR from which the funds for its financing will come. The draft addendum to the PRTR was already approved by the Government and sent to the European Commission in December 2022, and its negotiation seems to be nearing completion. On the other hand, the aforementioned political agreement on the Chips Law will allow the development of the PERTE Chip actions with full legal certainty regarding the state aid framework and, furthermore, to make use of the instruments included in the new regulation to speed up its authorisation.

A programme of the dimensions of PERTE Chip requires detailed sectoral knowledge to design effective measures. The national semiconductor sector has received limited attention in the last decades by the managers of res publica, which has resulted in an incomplete knowledge of the sector by the administration. A period of time was needed for the exploration of the business and academic fabric by those responsible for PERTE. AMETIC, the Spanish technology industry association, has also contributed to complete the map of the sector with a meritorious effort, although the report lacks data on the economic activity of the different links in the value chain. In accordance with the work carried out by said association, we can speak of up to 142 sector agents, highly concentrated in the semiconductor design segment (76%, including Fabless, IP Providers and IDM).
Figure 2.- Distribution by percentage of the value chain of the Spanish microelectronics ecosystem
Source: Executive Summary of the Mapping of the Spanish Microelectronics Ecosystem, AMETIC

Against a pessimistic judgement, the development of PERTE Chip can be said to be proceeding in line with what could be expected from the moment of its announcement, and is following the pattern of the so-called maturity cycle devised by Gartner in 1992. After its launch with the adoption of the PERTE in the Council of Ministers in May 2022, a peak of expectations was reached with the meeting held by the First Vice-President and the PERTE Commissioner with the ecosystem at the end of November 2022, which was apparently followed by a valley of disillusionment while waiting for calls for grants. The flow of the project continues and to remain camped at this point is unfounded; there has been evidence for some time of the PERTE entering the ramp of consolidation from which it will reach its productivity plateau.

Figure 3.- Gartner Maturity Cycle
Source: Wikipedia

The construction of the consolidation ramp started with the reservation for the PERTE Chip in the 2023 State Budget of €800 million earmarked for participative loans for entrepreneurial projects and €450 million earmarked for grants and subsidies. In line with the characteristics of the national ecosystem, the regulatory change has been promoted so that the first amount can be used with other financial instruments, such as ordinary loans or equity participation by the state. 

Entry into the productivity plateau, while still requiring the approval of the addendum, has also been open. The legal instruments seem ready for immediate use with the announcement of the next call for PERTE-related grants for €140 million, both to set up semiconductor chairs and to support R&D projects within the Missions programme of the Centre for Technological and Industrial Development (CDTI). This means committing 31% of the budget available for grants in 2023, to which must be added the support granted to industry for Spain’s participation in the IPCEI (Important Project of Common European Interest) in Microelectronics.

Spain’s Role in the Revival of the European Semiconductor Ecosystem
We have started by pointing to the European Union’s Chip Act as a figurehead for the empowerment of the European semiconductor ecosystem. The existence of the PERTE Chip provides the functional mechanisms to integrate Spanish companies and institutions in this effort.

The main novelty introduced by the Chip Act is the definition of a fast track for the approval of support for certain types of projects. ‘First-of-a-kind’ (FOAK) facilities that contribute to the security and resilience of the supply of semiconductors for the continental internal market will be able to benefit from prioritisation in the European Commission’s authorisation to receive aid from the Member States. These include semiconductor manufacturing facilities, but also chip manufacturing equipment production facilities and innovative high-density packaging and assembly facilities. In parallel to the FOAKs, support for innovative design centres is facilitated. 

Despite having a few months to go before the entry into force of the Chip Act, industrial semiconductor projects are starting to flourish in Europe. The European Commission has already given the green light to public support for STMicrolectronics’ projects in Italy and France, with a total value of approximately €8 billion. Infineon has started a €5 billion expansion of its production in Dresden. Bosch has also announced expansions of its Dresden and Reutlingen plants and new acquisitions worth €3 billion. The joint venture of Wolfspeed and ZF is awaiting approval to start up an estimated €3 billion production line in Saarland. Finally, possible investments in Dresden by Intel and TSMC, both presumably in excess of €10 billion, are in a different phase of definition.

There is still no news of initiatives similar to the ones mentioned above to be implemented in Spain, which has led some national actors to qualify the idea as utopian in the short term. In my opinion, the attraction of a semiconductor manufacturing line should remain a key pillar of PERTE. The ecosystem-driving capacity of a manufacturing chain should not be underestimated, as demonstrated in other parts of the world, and as a policy objective it should not be put on the back burner. 

There are, moreover, reasons to consider a semiconductor factory in Spain a possible and viable project. Firstly, there is room for it because the opportunities for Europe on the global stage are not exhausted; the global semiconductor industry association estimated that up to 17 of the 84 major sectoral investment initiatives with public support between 2021 and 2023 could be launched on the old continent. Secondly, because Spain has the strength of relevant sectoral fabrics in some of the areas enabled by the European Commission to have a high intensity of public support in its regional aid map, such as Andalusia and the Canary Islands. Thirdly, Spain meets the requirement of having large demand for semiconductors within its borders, such as an automotive manufacturing industry that is the second largest in Europe. In fourth place, the development of a manufacturing plant in Spain is also an imperative for Europe, whose semiconductor ecosystem can only be truly resilient if it balances its territorial distribution with a major industrial hub in southern Europe. And to these strengths should be added others that have served in recent years to attract technological investment to our country, such as affordable human capital and the growing availability of renewable energy sources.

The Chips Act regulates also the Chips Initiative for Europe, implemented through the EU Chips Joint Undertaking (Chips JU), which will boost design capabilities, create advanced test lines, accelerate innovative development of quantum chips and establish a network of competence centres. A 'Chip Fund' is also established in the Act to facilitate access to debt and equity financing for start-up companies. Some of the actions of PERTE Chip are complementary to the lines envisaged in the European initiative, which can boost the Spanish ecosystem’s relevant participation in the European scenario. In addition, the configuration of the governance of the Chips JU will possibly take place during the Spanish Presidency of the EU, which will enable Spain to play a relevant role in shaping it.

Finally, given the change in the global geopolitical situation since the PERTE was approved, it would be advisable to reflect on the inclusion in it of support measures not initially conceptualised for the design tools, manufacturing equipment, and materials segments. The importance of paying attention to the first two segments is evidenced by their centrality to the trade restrictions on China adopted by the United States in October 2022. Europe’s lack of relevance in the third of these segments presents an opportunity for Spain. The design of measures in all these segments within the PERTE Chip is also favoured by the content of the political agreement reached in the Chip Act.

Within the European strategy of reinforcing its strategic autonomy, Europe wants to end the decade with a recovery of its former production capacity in the semiconductor sector. With the PERTE Chip, Spain has invested a large part of its Recovery Plan in a decisive contribution to this objective. The development of this contribution has already started in 2023 by providing PERTE with the necessary budgetary resources.

The dimensions of the PERTE Chip will favour the recovery of the semiconductor ecosystem in our country, which had been languishing since the closure in the first decade of this century of the chip factory created by ATT in Spain. Boosting the microelectronics sector can provide Spain with the industrial pillar that will enable it to consolidate the leading position of our digital economy among the four large economies of the European Union. Only a strong role for Spain in the Europe of semiconductors will enable its resilience, with the creation of a hub in the south of Europe that supports the already emerging fabric in the centre of Europe.
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